A Pullback or a Top?

It’s been an exciting start to the year in equities, with a Christmas rally playing out on many stocks, rising into the early January date that we have learned to watch. It will be interesting to see if we now experience a pullback before our bull market continues, or if tops are forming on some stocks. I can’t resist using our old favourite, Commonwealth Bank (CBA:ASX), to illustrate - especially for those diligent students who kept watch over Christmas - as the All Time High was broken.

CBA had a clear signal reversal day on 7 January, which is one of the Time by Degrees dates we watch for turns. You can see this in Chart 1.

Chart 1: CBA Daily Bar Chart with Signal Day on 7 January

click chart to enlarge

What makes this interesting is firstly the price cluster around here, and then the time harmony also associated with it. I would like to thank Safety in the Market Platinum student Rob for his contributions on this setup on the Discussion Forum. He listed a number of ranges that reached 100% at this price, but I actually want to look at the market in terms of sections first, so I have shown the possibility of 3 sections from the 23 September 2011 low in the next chart. You can see that these sections are all approximately equal in price range.

Chart 2: Sections of the Market on CBA

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We can then break down the 3rd section into two equal sections, which gives us a much more accurate price for our “top”. In fact the high on 7 January was 63.70 which broke the 100% repeat by 3 cents. Near enough to perfection for me.

Chart 3: CBA with Ranges Repeating to 100%

click chart to enlarge

Back to the sections and if we compare the time-frames into the current high, we can see that the 86 trading days of the First Range Out has essentially repeated 100% in the last section. There is also harmony with the 224 day count which comes from the Venus cycle, but I will leave you to investigate that for yourself.

Chart 4: Equal Timeframes on Sections of CBA

click chart to enlarge

Now, to the question I asked in the title of this article. Will this just be a pullback before the main trend resumes, or is a top in? I would like to compare the setup with that of the last major turn which occurred back on 23 September 2011. You can refer to my September 2011 Platinum article entitled Sections on Commonwealth Bank for a comparison, but let’s now take a look at the Square of the 2009 Low. I usually use this as a Lows Resistance Card, but I also use it as a square and watch where the 1x1 angle from twice that low has been working on the market.

Chart 5: CBA with Square of 2009 Low

click chart to enlarge

You can see that the current high has broken through the angle then fallen sharply below it. If a first lower swing top were to sit right under that angle it would be acting as resistance and provide further confirmation that shorting is in order.

Another exciting square to check out is the square of the All Time Low. This is $5.80 and I have shown the recent action on the square in Chart 6. You can see where the current high has pulled up just 10 cents short of 11 times the All Time Low.

Chart 6: Square of All Time Low on CBA

click chart to enlarge

Platinum students might also like to check out the time cycles, angles and time by degrees harmony around the current high. I would be very interested to hear what students think. Is this a turn equivalent to the September 2011 low, or just another pullback like we saw in May and August? Trading with the trend has been very profitable since early August, but are we looking at the end of a great run, or a breather before another bullish move?

Whatever the result, we are seeing some great opportunity for trading at the moment. 2013 is promising to be both exciting and rewarding. Make sure you are part of it!